FAQ: Behind Microsoft's MP3 patent jam

Thursday's ruling that Microsoft owes $1.5 billion in damages for Windows' use of MP3-related patented technology prompts questions well beyond whether the software giant will take the money out of its checking or savings account.

Microsoft will undoubtedly try to have the verdict reduced or reversed. But if it stands, the court order also opens the door for Alcatel-Lucent to pursue damages from other companies that use MP3 music technology in their products.

Here is a list of some relevant questions and answers, as best they are known at this point.

Why was the award so large?
The verdict, which could mark the biggest patent infringement verdict in history, is based on the total number and average selling price of every Windows PC sold worldwide since May 2003. Although the percentage of royalties being sought was smaller than in many cases, the award is large because it is based on the total price of each Windows PC sold.

When a big verdict comes in, "it's called ringing the bell," said Lee Bromberg, a partner at Bromberg & Sunstein. "This is a really loud ringing of the bell."

Will Microsoft appeal?
Microsoft has said it will ask the current trial judge for relief first, and it may well appeal if it does not get the ruling changed. The judge is on vacation until next week, so Microsoft's motions won't be heard until at least then.

What are the odds that it will be overturned?
Patent cases are among the more frequently reversed types of decisions, so there is some reason for hope on Microsoft's side. At the same time, Bromberg said the judge handling the case has a lot of patent case experience and noted that courts tend to want to uphold the will of a jury.

"There is generally a reluctance to second-guess them," Bromberg said. That said, there are plenty of other items that will be heavily contested, including the way that the jury decided on the value of damages. "That is definitely an issue that is going to be fought about," Bromberg said.

Will Alcatel-Lucent go after other companies that use MP3 in their products?
"It certainly would be a concern if I were an MP3 company," Bromberg said, though an Alcatel-Lucent representative declined to comment on that question Thursday.

"There are different strategies that Alcatel-Lucent could take," said Robert Yoches, a partner at Finnegan Henderson Farabow Garrett & Dunner. If the company believes that the Microsoft verdict is likely to yield the most money it will get from an MP3 patent lawsuit, it might not want to take other companies to court and thus risk another court invalidating its patent, Yoches said.

If, on the other hand, it thinks that there is even more money to be had from lawsuits against other companies, it might settle with Microsoft for somewhat less and then go after them.

I have an MP3 player. Could I be liable?
Theoretically, yes. But it's very, very unlikely. It's much more likely that Alcatel-Lucent would go after the company that makes your MP3 player than to try to sue every individual device buyer.

"It's very rare for a patent owner to go after retail customers," Bromberg said. "The sales to customers are what creates value for the patent holder."

What was Alcatel-Lucent's role in developing MP3?
The MP3 technology was developed in large part by people with Germany's Fraunhofer and AT&T's Bell Labs, which became part of Lucent when it was spun off in 1996. Alcatel and Lucent merged last year, becoming Alcatel-Lucent.

Didn't Microsoft already license the technology from Fraunhofer?
Microsoft did pay $16 million to license MP3-related patents from Fraunhofer, but Alcatel-Lucent is arguing that it has patented technology that was not part of Microsoft's license, a point Microsoft disputes.

Why is the verdict so much larger than what Microsoft paid Fraunhofer?
The disparity is large, but it's not unheard of, Bromberg said. "What the patent holder would be willing to do by way of a license deal at the front end might be very different than what they are able to recover when the defendant says, 'We're not going to pay you a penny,' and they have to take it to the mat and go all the way through the litigation process," Bromberg said.

He pointed to the Research In Motion-NTP case, in which RIM ignored early offers to settle for a few million dollars and eventually agreed to a $612 million settlement.

Who else licenses the MP3 technology?
Hundreds of companies use MP3 technology. Major players include Apple, which supports it in its iPod devices and iTunes software, and Yahoo, which has an online music services. Chipmakers like Intel and Texas Instruments also license the technology. Thomson, which handles licensing of the Fraunhofer technology, has a list of MP3 licensees.

The real message here is that commpanies should slow down the pace of development of new technology. Every new technology now includes hundreds and thousands of elements that might be subject to one of millions of existing patents in unforseeable ways, and there's no gurantee that after securing licensing for all known patents that apply there would not be others that a court might be covinced they apply too. So it's best to slow down and wait up to twenty years for all those unknown or hidden patents to expire.

Obviously the legislators have created a legal system that favours the pace of development of technology in the early 19th century, and if that's what the legislators want then that's what their voters want too!

Thanks for the helpful and informative overview. One question I have is what impact, if any, this decision might have on other encoding formats -- specifically AAC. Are there elements of mp3 encoding in these other formats that could be challenged?

Another thing I wondered about is the degree to which this could affect other manufacturers. It seems from the descriptions that it is not the mp3 patent that is at issue, but rather Microsoft's implementation of it in Windows Media. Is it possible that the issue is narrower than some are suggesting?

You are showing your lack of intelligence with remarks like that. I have been on Jury duty several times and have felt that it is a small price to pay to have the freedoms I enjoy. But then you would probably also call me dumb for having served my country in the Military in a war zone. When I read comments like yours I sometimes wonder if it was worth it to serve so you could make such idiotic remarks

It is not the Jury that is at fault here, it is the legal system and the lawyers that are to blame.

Hey "community" guy, do you know what community means? When you get caught for IP theft, do you want "dumb" people on the jury when the RIAA goes after your head? Or do you want a jury of your "peers" whatever that may be?

Either the US figures this out, or all large companies move to Europe, Canada and Asia, or all large US tech firms get blown out of the water.

I think that the third option will be what happens. It will take a generation to realize that the concept of intellectual property does not work.

Note that for a company like Microsoft to 'move' they only have to move a small part of the company, most of it can stay in the US as sales, support, etc. R&#38;D needs to be a seperate offshore company.

I think you are going several steps further than granted.Software patents are the issue at dispute. Intellectual property is a much broader concept. There's a relatively broad consensus that software patents are hurting everyone. But there are zero existence proofs that IP protection is doing the same. In the past, in every market where there was zero IP protection there was near zero innovation as well outside the universities and government funded research. And you can't rely on those to develop an iPod.

Although I have looked at the patents, the news articles suggest that patent covers the *concept* of leaving out "noise" and parts of music that are not audible to humans. If true, then AAC (M4P) and WMA probably violate the patent.

It seems like uncompressed WAV is the safest, legally. So load up on mass storage... As a practical matter, users won't be targeted. But our options for storing music might change. I, for one, would be happy to avoid the Balkanization of music formats. I would be pleased if Napster, iTunes, Windows Media, Urge, Real Player, and Paradise Radio all used the same format on all devices.

Even thought aapl has aac, which is their own format, the Ipod and Mac both play MP3. So they could be liable, I personally think this is ridiculous, but thats the way the court system in the U.S. is, ridiculous.

Dell and HP ship there PC's from the VS to other country's (with the MS MP3 software) or they ship the Windows OEM CD's. Its all about a law that makes US businesses pay for all the US sales but also for shipments abroad.

They first sued Dell and HP because they ship the PC's but MS jumped in for the 'rescue', so damages are calculated on the PC's sold by Del and HP.

This law does not affect blueprints but is an Windows OEM CD a blueprint or not?

1.5 Billion is nothing compared to the amount MS could be liable for for the abuse of a world monopoly with totally ridiculous prices for their products, above all Windows of any description.

When will US legislators and prosecutors have the ethics and morals to stop the world's worst case of customer abuse? It takes courage to live according to capitalist principles, that is to absolutely control abuse to justify the rest of the capitalist principles.

You are confused. Capitalism has nothing to do with controlling a monopoly. Quite the opposite. In the case that you are stating.... MS, you have a choice buy Windows or not. That is the essence of capitalism. BTW, there is no monopoly. There are plenty of other viable options out there. Get a grip.

MS does not have a monopoly. Having 90% or even 95% market share does not constitute a monopoly in and of itself. Ever heard of Apple? Linux? No one forces you to use Windows. Once you buy your computer you are free to put on whatever software you want.

Ever heard of Open Office? No one forces you to use MS Office.

Get off your soapbox and at least take an economics course before you start making baseless rants

From what I understand, the purpose of patents is to encourage development of technology which would be expensive to develop (i.e. drugs, industrial processes or whatnot).

But I fail to understand why totally abstract concepts, which cost nothing to manufacture or produce, are patentable?

I believe a patent should be completely innovative to experts in the field (or require substantial amounts of effort to develop) AND require an actual implementation of the concept before the patent is awarded.

So basically you'd need an innovative idea and have an implementation of that idea, or have an implementation of something that requires a lot of effort (i.e. time and money) to develop.

The likelyhood that OGG doesn't step on the MP3 patents somewhere in their algorithms is super, super low. As soon as OGG actually generates a viable income stream someone will come after them. Open source or not.

Creative went after Apple for some mp3 player patent about the menu. It make more sense to go after Apple since they sells the most mp3 player, does it make sense to sue MS for the Zune (granted, Zune was not out yet then)? MP3 play on most computer thus by default MS got sued. Similarly if there is certain patent problem on consoles, Sony is the 1st to get it.

This is most definitely a case of going after the biggest player. Every single MP3 player, and really every digital audio player of any kind, is likely to be covered by these extremely broad patents.

At least, that is, until the patents expire or are found invalid. The only good news about this case is that with all the submarine patents and backdating used to pre-date the Fraunhofer deal, the patents were given a date of Dec. 1988. That means that they expire in a bit over two years. The remainder of MP3 patents should expire not too long after that, though I'm VERY certain that some patent troll companies will do their damndest to extend this.

Note that as usual in these Patent Troll cases, one of the patents was filled recently but with careful back-dating through a series of submarine patents. The end result is that a patent filed in 2002 is dated for 1988 in order to predate the (1989) deal with Fraunhofer.

The second patent was filed in 1993 and is clearly invalid since it covers technology that Fraunhofer had developped and gained patents for 4 years earlier. Unfortunately courts have held up in the past that there is absolutely NO requirement for a patent to be valid in order for them to be treated as such in patent violation cases (see RIM vs. NTP for another good example of this).

In any event, this case is a long, LONG way from being over. Microsoft has already counter-sued and will appeal this decision. The court battle will take AT LEAST another 2 or 3 years, and just before the final decision will be reached, the two companies will settle out of court for a negligble amount.

The lawyers involved here will make BIG-$$$, while Alcatel-Lucent and Microsoft will both end up losing a lot of money. And us consumers will get to cover the whole cost TWICE. First we'll pay more for products from these companies and secondly will pay more in taxes to cover the court costs associated with this nonsensical legal battle. It's a lose-lose situation for EVERYONE except for the patent lawyers.

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